Tapping Into Group Effort

OP-ED: Crowdfunding could be capital idea that goes long way toward unlocking L.A.’s entrepreneurial potential.
By Victoria Silchenko
Monday, December 3, 2012

Los Angeles has always been a hotbed of opportunity and creativity. But even with the highest number of entrepreneurs living here of any U.S. city (580 per every 100,000 adults, according to a Kauffman Foundation study), it still remains better known for its entertainment industry than any entrepreneurial spirit.

Though that could all be about to change with the rise of crowdfunding – a means to raise capital in small amounts from a large group of people from the Internet and social media.

Suggestions that this phenomenon could change the perception of La-La Land were very much in evidence at a recent gathering of leading local and international innovators, visionaries and investors. Many attendees at the first annual Next Generation Entrepreneurship and Global Crowdfunding Forum at Santa Monica on Nov. 16 saw crowdfunding as the clearest path to an economic comeback.

One of the distinguished speakers, Howard J. Leonhardt, founder of the California Stock Xchange, predicted: “Crowdfunding will bring the grandest expression of human creativity and economic growth ever seen in the history of human civilization and will unleash the dreams, will and burning desire of people who want to show what they can do – particularly those who have never been given a chance before.”

Others pointed out how crowdfunding has the potential to transform and democratize the funding industry by putting a lot more capability into the hands of the public – who have already proved their financing power. According to the Global Entrepreneurship Monitor in 2010, while $9.4 billion was committed by angel investors, $41.6 billion in private capital came from friends and family.

More recent data reveals further insights: In 2011, 4.8 percent of the U.S. population personally provided funds for new businesses while only 1 percent of the population was represented by venture capitalists and accredited investors (who must have an annual income of at least $200,000 or more than $1 million in liquid net worth). Moreover, the number of accredited investors dropped last year by 12.5 percent and was roughly just about 120,000 people.

The unconventional truth that was revealed at the forum was that formal investors do not have enough capacity to back all of the startups. Two prominent entrepreneurs, angel investors and founders of leading local accelerators, David Carter (of the Amplify business accelerator) and Howard Marks (of StartEngine), agreed that they don’t have to compete with each other as there is plenty of businesses to go round.